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SEC Roundup – Clayton Completes Tenure, Broker-Dealer Proposal, Fund Manager Charged





News of the SEC charging Ripple and its key executives with the distribution of unregistered securities has caught everyone’s attention.  Despite the scope of this lawsuit, the SEC has remained hard at work, providing multiple updates this week with regards to its operations.

The Finish Line

Jay Clayton is now officially the former Chairman of the SEC.  In a recently released statement, Clayton addressed his departure, stating that “…in the process of wrapping up my agenda and will depart on December 23rd.”

Clayton summed up his time at the SEC, outlining the scope of enforcement actions, and regulatory updates.

“At the SEC, we focused on modernizing our regulatory framework, adopting over 90 rules, many in areas that had not been substantively addressed in decades.  Importantly, our inspection and enforcement efforts focused on the needs of those tens of millions of American households.  We obtained orders for over $14 billion in monetary remedies in enforcement actions and returned a record of approximately $3.5 billion to harmed investors”

New Rules

Life for broker-dealers involved with digital securities may get just a little easier in the near future.  The SEC has released a proposal for public commentary, which would see the regulatory body offer broker-dealers a 5-year amnesty period in which no enforcement actions would be taken.

This period is being offered to allow the development of necessary infrastructure to be developed – with a specific emphasis on the custody of digital securities.

“The Commission envisions broker-dealers performing the full set of broker-dealer functions with respect to digital asset securities – including maintaining custody of these assets – in a manner that addresses the unique attributes of digital asset securities and minimizes risk to investors and other market participants.”

It continues,

“The Commission recognizes that the market for digital asset securities is still new and rapidly evolving.  The technical requirements for transacting and custodying digital asset securities are different from those involving traditional securities. And traditional securities transactions often involve a variety of intermediaries, infrastructure providers, and counterparties for which there may be no analog in the digital asset securities market.  The Commission supports innovation in the digital asset securities market to develop its infrastructure.”

In an effort to usher along this infrastructure development, the SEC has provided various steps which could be taken, that it feels would offer investors the required level of security when dealing with such assets.  The following are a few examples of these.

  1. Broker-dealers limited to dealing exclusively with digital securities
  2. Implement clear policies and procedures ensuring sufficient reporting responsibilities
  3. Implement clear policies and procedures surrounding the analysis of each digital asset and its unique attributes (scalability, transaction speeds, resiliency, etc.)
  4. Develop and utilizes procedures which facilitate and demonstrate the custodying of digital assets.

Although there are various strings attached, this proposal is a definite positive move for the digital securities sector.  It will hopefully allow for unfettered and organic growth to occur, as companies and regulators alike establish the necessary infrastructure to run a safe and efficient sector.

Charged with Fraud

While broker-dealers may have something positive to look forward to, there are those other than Ripple which have caught the eye of the SEC in a negative manner.

Stefan Qin, Founder of Virgil Capital, is being charged by the SEC with fraud.  These charges stem from various actions which range from fabricated records, to misappropriated funds, and more.

“Defendant Stefan Qin has been engaged in a deceptive course of conduct, using materially false and misleading statements to investors and others, causing serious harm and the threat of further harm to two funds he controls, the Virgil Sigma Fund LP (the “Sigma Fund”) and the VQR Multistrategy Fund LP (the “VQR Fund”).”

It is indicated that although Stefan Qin is believed to currently be residing in South Korea, he is expected to fully cooperate with the SEC.